Tuesday, March 15, 2011

Bankrolling the New Socialist Countryside

China's economy during the last decade has followed a strategy of "if you build it they will come," or "build now, ask questions later." This year's rural policy emphasis is on building things in the countryside, especially water projects. The government already has been increasing budgetary spending on rural construction and subsidies at a rapid rate. They are turning to the banks to pump more money into building the "new socialist countryside." Last month, the major banks were told to increase loans for various rural projects this year.

On March 10, the bank's vice chairman, Ding Jie, told Farmers Daily that this is a difficult time to raise funds. According to Ding, the central leadership required financial organizations to increase support for san nong, but commercial bank credit plans have also been curtailed. ADBC's credit plan for this year is the same as last year, at 210 billion yuan.

Ding said, "With the return to sound monetary policy, tightening of market liquidity, difficulties arranging loans increasing, the ADBC will increase its capital funds mainly through issuing large amounts of bonds." They will use various strategies to raise the money. The bank has already issued bonds valued at 75 billion yuan.

In order to implement the no. 1 document, The Peoples Bank of China (the central bank) will provide ADBC with special funds this year to support provincial level plans for field irrigation project construction, river and lake management and rural drinking water projects.

Ding said ADBC plans to issue 100 billion yuan in credit for "new socialist countryside construction," of which 30-to-40 billion yuan is for water projects. Presumably, the remainder of its 210 billion yuan credit plan is for funding procurement of grains, oilseeds and cotton, its traditional business. It's not clear what the remainder of the 400-billion-yuan bond-issue is for.

It's not clear who buys these bonds. Probably big companies are pressured to buy them. Maybe even other banks. Money moves in mysterious ways in China to keep the building going.